Aug. 6 (Bloomberg) -- Banks in the U.S. are lending the
most since the recession ended in June 2009, supporting an
economy weighed down by 8.3 percent unemployment.

Borrowing by consumers and businesses rose in the week
ended July 25 to $7.1 trillion, within 2.9 percent of its
October 2008 peak, according to Federal Reserve data. New
lending for autos jumped to $134.3 billion in the first four
months of the year, up 56 percent from the same period in 2009,
according to credit bureau Equifax Inc.

The increase in lending may prevent the economy from
slowing further after growth cooled to a 1.5 percent annual pace
of growth in the second quarter. While the Fed last week moved
closer to expanding its record stimulus, the figures on credit
indicate that 43 months of near-zero interest rates may finally
be giving the economy the jolt it needs, said Jim Paulsen, who
helps oversee $320 billion as chief investment strategist at
Wells Capital Management in Minneapolis.

“Many pieces of the credit-creation process are starting
to work again,” Paulsen said. “Banks are lending, people are
borrowing, housing prices are going up and a sense of normality
is returning.”

Among the reasons for the pickup in lending: Households,
whose spending makes up 70 percent of the economy, have cut debt
since the 2008-09 credit crisis, while banks have increased
liquidity and bolstered capital buffers. Credit requirements for
buyers of new and used cars have eased.

Stocks Rally

Stocks climbed today amid better-than-estimated corporate
earnings. The Standard & Poor’s 500 Index headed toward its
highest close in more than three months, gaining 0.5 percent to
1,397.98 at 3:24 p.m. in New York.

U.S. banks “continued to report having eased their lending
standards across most loan types over the past three months,”
the Fed said today in Washington in its quarterly survey of
senior loan officers. Consumer lending standards for car
financing and credit card loans eased, while standards for other
consumer borrowing were about unchanged, the survey said.

Banks “reported stronger demand for auto loans,” and an
increase in demand for credit card loans, according to the
survey.

The economy needs sustained credit growth to begin a cycle
of spending and hiring and to reverse the slowdown, said Steven
Blitz, chief economist at New York-based ITG Investment Research
Inc. Economic growth has slowed from a 4.1 percent pace in the
final quarter of last year as consumers and companies pulled
back on spending.

‘Best Indicator’

“Borrowing is the best indicator out there for future
growth,” Blitz said. “If you see the demand to borrow grow,
and banks willing to lend to meet that demand, you’ll grow your
national income faster.”

Fed officials last week left unchanged their statement that
economic conditions would likely warrant holding the benchmark
interest rate target near zero at least through late 2014.

Policy makers “will closely monitor incoming information
on economic and financial developments and will provide
additional accommodation as needed to promote a stronger
economic recovery and sustained improvement in labor market
conditions in a context of price stability,” the Fed said.

“The Fed will consider loan data” when they next meet on
Sept. 12-13, Paulsen said.

More Optimistic

Paulsen is more optimistic than many of his peers: he sees
the economy growing 2.75 percent to 3 percent in the second half
of the year, more than the 2.2 percent median forecast in a
Bloomberg survey of 76 economists from July 6 to July 10.

The economy could use a fillip from stronger lending, said
Sean Incremona, senior economist at 4Cast Inc. in New York.
“We’re still showing pretty weak growth in the economy and
we’re not really impressed by the trends going forward, so bank
lending would help.”

A Labor Department report last week eased concern the
three-year recovery is faltering. While the jobless rate
unexpectedly rose in July, employers added 163,000 workers to
payrolls, more than forecast and up from 64,000 in June.

The Labor Department will report Aug. 9 that initial
jobless claims rose to 370,000 last week from 365,000 in the
week ended July 28, according to the average of 37 economist
estimates compiled by Bloomberg.

U.K. Economy

Elsewhere, house prices in the U.K. fell in July for the
first time in three months, losing 0.6 percent from the previous
month, mortgage lender Halifax said today. Finland’s Finance
Minister Jutta Urpilainen said the economy may stall next year
as Europe’s debt woes stunt the expansion. In Indonesia, the
economy unexpectedly accelerated in the second quarter as the
country withstands Europe’s sovereign-debt crisis.

Some U.S. growth is coming from automakers and retailers
that are adding workers to meet demand as consumers gain access
to credit. Fort Lauderdale, Florida-based AutoNation Inc., the
largest U.S. retailer of new vehicles, reported quarterly profit
that beat analysts’ estimates on July 19.

Greg Williams, a warehouse manager at Box-Board Products
Inc. in Greensboro, North Carolina, said he bought a new BMW 535
in June, lured in part by a 2.9 percent, 60-month interest rate,
the least he’s ever paid for a car loan.

‘More Affordable’

“We’ve had some pretty good growth at my company and we’re
meeting our budgets, and I actually think the economy is OK,”
said Williams, 50. The lower rate “made it easier to get into
the car and it made it more affordable. Otherwise I wouldn’t
have purchased this car.”

Lenders have reduced the average credit score for new-car
buyers to 760 in the first quarter of this year from 776 two
years earlier, and for used-car buyers to 659 from 665,
according to researcher Experian Automotive.

“People want to borrow to buy cars, and banks have been
looking at cars as less risky assets in the last couple years,
so they’re jumping back into the game,” according to Alec
Gutierrez, the senior market analyst at Irvine, California-based
auto-market researcher Kelley Blue Book Co.

Sales of bonds tied to payments on subprime car loans are
accelerating at the fastest pace in five years. Issuance of
asset-backed debt linked to vehicle loans to borrowers with sub-par credit records rose to $10 billion from January until July
30 compared with $8.2 billion in the same period last year,
according to Barclays Plc.

Pent-up Demand

“We’ve been seeing a lot of pent-up demand coming back
into the market from people who didn’t buy in the past few
years,” said Lacey Plache, chief economist at auto researcher
Edmunds.com in Santa Monica, California.

U.S. auto sales are on pace for the best year since 2007.
Light-vehicle deliveries rose 8.9 percent in July to 1.15
million, and first-half sales are up 15 percent, setting a pace
for more than 14 million annual sales, according to researcher
Autodata Corp.

“Consumer spending is something that has ripple effects
throughout the economy, and autos are certainly helping prop up
the pace of recovery,” Plache said. Autos and auto parts
comprise 7 percent of U.S. manufacturing, according to the Fed.

Consumers have become more attractive to lenders by paring
debt. A gauge of household indebtedness fell for a record 12
straight quarters to the lowest level since 1994. The ratio of
household debt payments to disposable income declined to 10.98
in the first quarter, down from a peak of 13.96 in September
2007, according to Fed data.

Consumer Credit

Total outstanding U.S. consumer credit, which includes
student loans, has rebounded close to a record. The Fed’s tally
of short- and intermediate-term loans to individuals, excluding
real estate lending, rose to $2.57 trillion in May, near the
$2.58 trillion peak in July 2008.

The value of bank loans in the U.S. has increased for five
straight quarters, rebounding to more than $7 trillion from last
year’s low of $6.69 trillion in March 2011, Fed data show. Loans
to individuals account for $1.11 trillion of that total.

“We’re getting back to a financial system where the
economy can grow closer to its full potential,” said Jerry
Webman, chief economist at New York-based OppenheimerFunds Inc.,
which has $177 billion in assets. “It’ll employ more people,
enhance capital investment, and all that begins a virtuous
cycle.”